The return trends at Dana Gas PJSC (ADX:DANA) look promising

What underlying trends should we look for in a company to find a multi-bagger stock? We want to see two things, among other things; primarily a growing one yield on invested capital (ROCE) and secondly on an expansion of the company quantity of the invested capital. This shows us that it is a compounding machine, capable of continually reinvesting its earnings into the business and generating higher returns. With that in mind, we’ve noticed some promising trends in Dana Gas PJSC (ADX:DANA) so let’s look a little deeper.

Understanding return on capital employed (ROCE)

If you’re new to ROCE, it measures the ‘return’ (pre-tax profit) that a company generates from the capital invested in its operations. The formula for this calculation on Dana Gas PJSC is:

Return on Capital Employed = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)

0.069 = $176 million ÷ ($2.8 billion – $239 million) (Based on the last twelve months up to and including December 2023).

Therefore, Dana Gas PJSC has a ROCE of 6.9%. In absolute terms that is a low return and it also performs below the oil and gas industry average of 11%.

Check out our latest analysis for Dana Gas PJSC

In the chart above, we compared Dana Gas PJSC’s prior ROCE to its past performance, but the future is arguably more important. If you want, you can check out the forecasts of Dana Gas PJSC analysts free.

What does the ROCE trend for Dana Gas PJSC tell us?

Shareholders will be relieved that Dana Gas PJSC has become profitable. Although the company has not been profitable in the past, it has now turned things around and is earning 6.9% on its capital. Although returns have increased, the amount of capital used by Dana Gas PJSC has remained the same over the period. Since there is no noticeable increase in invested capital, it is worth knowing what the company plans to do in the future in terms of reinvesting and growing the business. After all, a company can only become a long-term multi-bagger if it continuously reinvests in itself at a high return.

The ROCE result of Dana Gas PJSC

As discussed above, Dana Gas PJSC appears to be becoming increasingly adept at generating returns, as capital employed has remained the same, but profits (before interest and taxes) have increased. And since stocks have been relatively flat over the past five years, there could be an opportunity here if other metrics are strong. If so, research into the company’s current valuation metrics and future prospects seems appropriate.

However, Dana Gas PJSC has some risks, and we have seen that 1 warning sign for Dana Gas PJSC that you may be interested in.

If you want to look for solid companies with great earnings, take a look here free list of companies with good balance sheets and impressive returns on equity.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.